2100 Evergreen Park Dr SW - P.O. Box 40916 -
Olympia, Washington 98504-0916

(360) 956-4600 - FAX (360) 956-4785

February 2, 2004

Mr. Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street NW
Washington, DC 20549-0609

Dear Mr. Katz:

Subject: Release No. IC-26288; File No. S7-27-03

As a trustee, the Washington State Investment Board (WSIB) seeks to provide plan participants with "best of class" investment options at the lowest cost to the participant. In order to achieve that goal, the WSIB has chosen an unbundled approach in which different parties provide recordkeeping services and investment options.

The WSIB is responsible for the investment of $56 billion in total assets and, according to Pensions & Investments, invests the assets of the largest public 401(a) and the tenth largest 457 plan. The WSIB takes this responsibility very seriously and is deeply concerned that the Security Exchange Commission's (SEC) "hard four" proposal unnecessarily and systematically discriminates against unbundled plan participants.

We applaud and fully support the intent of the proposed ruling but do not support a solution that is discriminatory. Before an unbundled plan participant's trade request is delivered to a mutual fund, significant record keeping and compliance duties are necessary. The "hard four" rule would require investment decisions to be made by plan participants as early as noon. This premature cut-off could have substantial adverse effects on participants relative to those mutual fund investors who hold their investments directly through accounts at the mutual fund. If a significant economic event occurs during the day and the unbundled plan participant invested in a mutual fund does not learn about that event until, for example, 1:00 P.M., the participant can not trade out of the mutual fund shares on that day and instead will receive the next day's price on any order placed following the news. This would be a discriminatory practice creating an unlevel playing field.

We recommend that the SEC consider a viable alternative that can stop illegal trading without systematically discriminating against unbundled plan participants. This alternative was offered for comment by the SEC in the discussion section of Release No. IC-26288; File No S7-27-03 and included the following:

  • Electronic or physical time-stamping of participant orders in a manner that cannot be altered or discarded once the order is entered into the trading system;

  • Annual certification that the intermediary has policies and procedures in place designed to prevent late trades, and that no late trades were submitted to the fund or its designated transfer agent during the period; and

  • Submission of the intermediary to an annual audit of its controls conducted by an independent public accountant who would submit his report to the fund's chief compliance officer.

These procedures can be used in a manner that does not unfairly constrain the investment options of unbundled plan participants. In a time when millions of Americans' retirement savings are dependent upon the benefits of employer-sponsored retirement plans, it would not be in the best interest of investors to require a "hard four" close. Ironically, such a regulation would produce the results that directly undermine its stated purpose-the creation of a fair and level playing field among investors. Instead, the "hard four" proposal promises to introduce new and substantial inequalities by favoring those who invest directly in mutual funds or have access to bundled plans. This could force plan sponsors to choose between the low-cost investment options with good returns that are available in unbundled plans and less restrictive trading opportunities for the participants through a bundled plan.

We strongly encourage the SEC to adopt an alternative that can effectively address late trading abuses without these unintended discriminatory effects.

Thank you for your consideration.


Joseph A. Dear
Executive Director